supply chain collaboration

Supply Chain Collaboration

Clarifying Supply Chain Relationships

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Outline:• Supply Chain Relationship Definition &

Clarification

• Deeper Dive Into Collaboration

• Reality Check of Supply Chain Relationships

• Charting Collaboration Levels & Power

• Supply Chain Information Sharing

• Components of S C Relationships

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A Supply Chain Can Be Described as a Set of Relationships Among Suppliers, Manufacturers, Distributors, and Retailers That Facilitates The Transformation of Raw Materials Into Finished Goods

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“…The single most important ingredient for successful SCM may be trusting relationships among partners in the supply chain, where each party has confidence in the other members’ capabilities and actions. And trust building is characterized as an ongoing process that must be continually managed.”

Rob Handfield, Director Supply Chain Resource Consortium (SCRC)

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True Partnerships are Difficult to Achieve and Maintain, but They Reap the Most Benefits Operationally and Financially

Historically, it was Always Believed That an Adversarial Relationship was Necessary to Establish the Required Checks & Balances

As Always, Global Supply Chains Make Relationship Building and Strengthening More Difficult

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One VP of Materials Management at a Fortune 500 Manufacturer Expressed this Feeling:

“Supply chain management is one of the most emotional experiences I’ve ever witnessed. There have been so many mythologies that have developed over the years, people blaming other people for their problems, based on some incident that may or may not have occurred sometime in the past. Once you get everyone together into the same room, you begin to realize the number of false perceptions that exist. People are still very reluctant to let someone else make decisions within their area.”

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Supply Chain Collaboration is a Commonly Used Term That is Actually Applied to Several Different Kinds of Relationships:• Arm-Length Relationships

• Cooperation

• Coordination

• Collaboration

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Some Other Terms That Have Been Used:• Co-Opetition

• Relationship Between 2 Competitors That Have Agreed to Work Together for Mutual Benefit.

• Coercion• Customer “Strong-Arms” Supplier to Provide Products

or Services at a Predetermined Price

• Co-Packer• Supplier Produces What Customer Is/Was Capable of

Producing in Addition to or Replacing Customer’s Output

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Arm-Length Relationships

• Most Common

• Little Investment by Either Party in the Relationship (Able to Change Suppliers Quickly)

• Minimal Information Sharing

• Limited Interaction Between Companies

• Low Trust & Commitment

• Short Term, Contract Based

• Adversarial

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Cooperation

• Grew Out of the Need to Manage Increasingly Complicated Information & Material Flow

• Parties Are More Tightly Linked, Sharing More Information

• Fewer Suppliers, Longer Term Relationships

• Still Utilizing Short Term Perspective

• Initial Emergence of Integration & Interdependency

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Coordination• Information Technology More of a Factor

• Amount of Data Infrastructure & Sharing is Increased

• Information Systems More Strongly Linked

• More Emphasis on Strategy

• Collaborative Planning, Forecasting, Replenishment Utilized

• Vendor Managed Inventory (VMI) an Option

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Collaboration• Two Reasons Why Collaboration is Popular:

•Supply Chain Management Strategy Has Changed Priority From Mass Production/Quality to Customer Satisfaction (Which still requires a Quality focus)

•Information Technology is Advancing Rapidly and is More Affordable, Allowing Companies to Implement More Sophisticated Supply Chain Partnerships

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Collaboration (cont.)

• Refers to the Most Committed Relationship Between Organizations With No Equity Relationship

• Link Between Companies, in a Supply Chain Context, is as Strong as it Can be Before Joint Venture or Vertical Integration

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• Two Key Points Separate Collaboration From the Preceding Relationships:

1)Elements of Cooperation & Coordination Are Stronger• Greater Trust, Commitment, Data Sharing

2)Greater Diversity of Non-Logistics Activities Performed Jointly• Product Design, PLM, Quality Assurance,

Forecasting

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• Two Types of Collaboration Have Emerged:

• Type 1 (Skill Substitution) Involves Companies Working Together in Logistics and Manufacturing Activities (SCM)

•More Traditional SCM, Logistics Management

•Virtual Network With Each Organization Linked via Technology

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• Two Types of Collaboration Have Emerged (cont.)

• Type 2 (Organizational Learning) Involves More Non-Logistics Activities

•Broader Definition of SCM

•Considered a Strategic Alliance Where Buyers & Suppliers Function More as a Single System

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Degrees of Collaboration

• Measuring the Level of Collaboration That Exists Falls Into Two Categories:1. How Companies Interact With Each Other

• Trust • Commitment• Balance of Power• Resolving Cultural Differences

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Degrees of Collaboration

• Measuring the Level of Collaboration That Exists Falls Into Two Categories: (cont.)

2. The Means By Which They Interact• Information Systems• Collaborative Controlling System • Risk/Reward Sharing Structure• Joint Decision Making Process• Conflict Management System

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Collaboration Reality Check

• Resources & Trust Are Scarce

• “Winner Takes All” Still Prevails

• Distrust & Wariness Are Still Prevalent, Especially in Developing Economies

• Exerting Power by One Party (Customer) is Prevalent in the Auto Industry

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Low Collaboration

High Collaboration

Buyer

Dominance

BuyerDominated

Arms-Length

BuyerDominated

Collaboration

Symmetrical ArmsLength

True Collaboration

Supplier

Dominance

SupplierDominated

Arms-Length

Supplier Dominated

Collaboration

Po

wer

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Variables That Define the SC Relationship• Formalization of the Relationship

• Intensity or Focus on the Relationship

• Frequency of Communication

• Standardization of the Data Being Shared

• Reciprocity Between Parties

Combination of these Variables Give Rise to Various Buyer-Supplier Relationships

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Information That Can Be Shared to Strengthen a Supply Chain Relationship• Inventory Levels

• Sales Data

• Order Status (Tracking)

• Sales Forecast

• Production/Delivery Schedules

• Performance Metrics

• Capacity Information

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Areas Where Power Can be Exercised1. Pricing Control

2. Inventory Control

3. Operations Control

4. Channel Structure

5. Information Control

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Relationship Profile Relationship Components

Collaborative –

Supplier Dominance

Supplier uses demand data to forecast, speculate, push products to buyer.

Collaborative –

Buyer Dominance

Forecast based on data, supplier makes product, delivers on signal from buyer

True Collaboration

Demand data shared through joint forecasting, decision making (time & size of delivery)

Arms Length

No data shared – production based on orders only

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Conclusion:

The Continual Globalization of Supply Chain Management Requires More Attention to Relationship Building and Maintenance to Address the Multitude of Communication and Logistics Issues That Are Now, and Will Continue to be, Critical to Successful Supply Chain Management.

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Review:• Defining Supply Chain Relationships

• Collaboration Details Review

• Real World Look at Supply Chain Relationships

• Review of Collaboration Levels & Power

• Information Sharing Within Supply Chain Management

• Ingredients of S C Relationships

• Conclusion

supply chain collaboration

Documents

supply chain management

global supply chains

set of relationships

used term

relationship able

adversarial relationship

longer term relationshipsstill

informationfewer suppliers